WOFE Law Implementing Rules amended 2

Further to the amendments of the Law of the People's Republic of China on Wholly Foreign Owned Enterprises (WOFE Law) last October, its implementing rules were amended accordingly by the State Council on 12 April 2001.

Major amendments reflect those to the WOFE Law, including the removal of the requirement that WOFEs should submit production and operation plans to the departments-in-charge and the change of the requirement that a WOFE may be established only if it uses either advanced technology or exports more than 50 percent of its products into a matter of encouragement

In addition, other restrictions on registered capital are relaxed. For instance, the old Article 22 of the WOFE Implementing Rules prohibits the reduction of registered capital outright. The new version adds that if there is a need for a reduction due to changes in total investment, production and operation scale, authorisation from the approval authority must be sought.

Article 26 of the old WOFE Implementing Rules provides that if the foreign investor makes registered capital contribution in the form of machinery and/or equipment, the contribution must meet two conditions:

(i) that it is necessary for the production needs of the WOFE and that it cannot be manufactured within China; or
(ii) in the case that China does manufacture such machinery or equipment, its technical specifications cannot meet the requirements of the WOFE.

The new article has eliminated condition two.

Similarly, the old Article 28 of the WOFE Implementing Rules provides for the situation where foreign investors make registered capital contribution in the form of industrial property rights or know-how. It had required, among other things, that in order to do so, such industrial property rights or know-how must have the potential to promote and produce new products in which China is in urgent need of and that such products are suitable for export. This requirement has been removed in the new amendments.

For further information please contact Luke Filei on [email protected] or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.